Modest growth forecast for plastics, other key industry sectors: report

Five key Canadian industry sectors, including plastics, can look forward to growth this year, although for some it will be modest, according to reports released by the Conference Board of Canada and the Business Development Bank of Canada (BDC).

The “Canadian Industry Profile – Winter 2013” report provides an annual outlook for plastic and rubber products, chemicals, computer and electronic product manufacturing, non-metallic mineral products, and pharmaceutical products.

“Despite only modest economic growth at home and in the US, companies in all sectors are choosing to invest in innovative ways to add new products and services to their offerings,” said Pierre Cléroux, BDC’s vice-president and chief economist. “They’ve recognized that the best way to stay afloat in this current economic environment it to look for new opportunities and tap into new markets.”

Plastic and rubber products, identified as key to the health of the economy, will experience modest growth in the near term but profits were up 63 per cent in 2012 thanks in part to lower crude oil and natural gas prices. Growth in U.S. is boosting demand, as are emerging markets where middle classes are driving growth in automobile and aircraft production. The report also notes technological advances are improving plastic products as substitutes for other materials, such as metals and bio-plastics as replacements for petroleum-based polymers. Profits are expected to rise by another 32% this year to more than $900 million, and employment to increase for the first time since the recession.

Profits in Canada’s computer and electronic product manufacturing industry slipped to a nine-year low in 2012, but the industry is counting on a revival in Blackberry’s fortunes for a rebound.

“The largest company in the Canadian industry, Blackberry, has gone through a major restructuring and its future depends heavily on the success of its new generation of smartphones,” said Michael Burt, the Conference Board’s director of industrial economic trends. “Early sales and response for the new Blackberry puts the industry on track to achieve our 2013 forecast. In the longer term, the performance of Blackberry will shape the industry as a whole.”

Sales in the sector dropped in 2011 and production declined seven per cent last year while more than 8,000 jobs were lost on top of the 15,000 lost in 2011. As a result, profits fell from more than $2 billion in 2011 to just $264 million in 2012. Production and prices are forecast to increase modestly this year, while costs will decline, which will push profits to $846 million.

An aging population and more money spent on drugs have made pharmaceuticals the second-largest component of health care expenditures, but there has been almost no price growth because of several factors such as: provincial government demands for generic drugs and volume discounts; price controls on patented medications; and the end of patents on some blockbuster drugs. A decline in costs will drive profits up by 73 per cent this year to $665 million.

Uncertainties in major export markets held back the chemicals industry last year but this year is looking more positive thanks to demand from the automotive industry and construction in the US. Cheap natural gas, a key feedstock, is also helping. New growth opportunities are presenting themselves in emerging economies such as China and the Chemistry Industry Association of Canada predicts a large increase in capital expenditures with the reduction in Canada’s corporate tax rates low interest rates and the rising availability of shale gas.

However, a weak price outlook means that industry profits are forecast to fall for the second consecutive year to $4 billion.